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March Existing Home Sales and February FHFA Housing Prices

Spring has sprung, and so have home sales and prices, further indications that the economic slowdown was largely weather driven.


Key Data: Home Sales: +6.1%; Median Prices (Year-over-Year): +7.8%; FHFA Prices (Monthly): +0.7%; FHFA Prices (Year-over-Year): 5.4%

In a Nutshell: "Spring has sprung and so have home sales and prices, further indications that the economic slowdown was largely weather driven."

What it Means: March is the transition month from winter to spring and as such, we should start getting indications of the extent to which the weather whacked the economy. It looks like it was a lot. The National Association of Realtors reported that existing home sales soared in March. The increases were across the nation but were led by large rebounds in the winter-battered Midwest and Northeast. Both single-family and condo purchases rose strongly, with condo demand up double-digits. As for prices, they are starting to rise faster and were up sharply over the year. The deceleration in home price gains looks like it is over, driven in part by limited supply. While the number of homes on the market rose, given the jump in the sales pace, the number of months it would take to sell all those available homes dropped. The inventory level is about 10%, where it should be for a healthy market.

The Federal Housing Finance Agency's House Price Index rose solidly in February, supporting the view that home price increases are accelerating once again. There was a slowdown in the second half of 2014, but that appears to be behind us.

Markets and Fed Policy Implications: It looks like the end of winter is leading to a housing rebound. But there are a large number of factors at play that will affect the housing market over the next year or so. With prices rising, the number of underwater/marginally positive homes is falling, while the delinquent home overhang is moderating rapidly. That should provide for more homes coming on the market. On the other side, continued unease about relocating for job reasons is limiting the willingness to move and therefor supply. A better job market, improving balance sheets and time, which are allowing households to eliminate bankruptcies on their records, are increasing potential demand as more households can qualify for mortgages. Rising prices have yet to make a large impact on new home buyers but they raise a warning flag that reduced demand from this group is possible. The sector is coming back from its winter doldrums, and most of the factors argue for even more improvement going forward. That should buoy investors, who are uncertain about future profits. As for the Fed, the FOMC commented in its March 18th statement that the housing market recovery remains slow. That may no longer be the case. The Committee meets next (April 28-29), so we will see what the thinking is soon enough, but the really important meeting is June. With two jobs reports, first quarter GDP and a variety of inflation indicators to be released, the run up to that meeting will help determine the timing of the first rate hike. It may not happen in June, but it is coming and the housing data only add to that belief.


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